EURGBP Lower After Latest UK Growth Figures

The EURGBP exchange rate was lower by almost 0.10% after the release of German inflation numbers and the latest UK GDP growth numbers. German prices hit the 2% level, but the ECB have said 3% is possible this year. UK growth was boosted by the reopening of schools and the latest bounce in construction and retail.

The EUR to GBP rate is trading at 0.8584 in early trading on Wednesday and the pound will look to find further traction in the sessions ahead.

German inflation sets the tone for the GBP v EUR

The German economy saw ZEW economic sentiment figures at their highest level in 20 years yesterday as hope returns to Europe’s largest economy. An improved vaccine rollout in the country has boosted sentiment and there are hopes that the economy can see a rebound in the services sector. That will need to occur as the economy saw 2% inflation this morning.

ECP policymaker Isabel Schnabel said yesterday that 3% inflation was possible this year and that was an obvious move to get in ahead of the latest 2% print. The 2% level is the number that global central banks have stated as their goal and Schnabel’s comments were an attempt to soothe market fears over rising prices.

Schnabel said that even a 3% reading would be a “short-term fluctuation” and that the ECB’s strategy has to “look through” that number. The ECB Chief Economist Philip Lane also said in a recent statement ECB’s “below but close to 2%” inflation target was “symmetric” but was not a ceiling for prices. Central banks don’t want a repeat of the bond market jitters that rocked bond yields earlier in the year and they are coordinating statements to say that inflation is transitory, while many investors disagree. The real proof will come in the coming months when the European economy reopens alongside the US and UK. Price pressures will likely occur and growth needs to match that move or the ECB will likely have to intervene with further bond buying.

UK GDP powering ahead but expected

The latest 3 month estimate for UK GDP was -1.4%, which was better than the -1.7% which was forecast.

Wednesday’s reading was priced in after the BoE upgrade at its monetary policy announcement last week. The bank said the UK would grow by 7.2% and that means that traders will use that as a guide for future GDP figures.

The numbers from the UK include boosts to retail and construction, while the country has now almost reopened fully and that will continue to boost sentiment. Since the figures today for the quarter to March were noted, the UK retail sector has seen strong footfall and puns and restaurants will get much needed funds to consider hiring once again.

The EURGBP has was rejected at the 0.8600 and the next target will be the lows for 2021, which were below the 0.8500 figure.

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